Digital Garage (TSE:4819) Is Paying Out A Larger Dividend Than Last Year

The board of Digital Garage, Inc. (TSE:4819) has announced that it will be paying its dividend of ¥53.00 on the 24th of June, an increased payment from last year's comparable dividend. This takes the annual payment to 1.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Digital Garage

Digital Garage's Distributions May Be Difficult To Sustain

We aren't too impressed by dividend yields unless they can be sustained over time. Even though Digital Garage isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 81.2% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

Digital Garage Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥5.00, compared to the most recent full-year payment of ¥43.00. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Earnings per share has been sinking by 26% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Digital Garage's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Digital Garage's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Digital Garage that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.